How Do You Document Income For A Mortgage?

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What kind of income documentation do you need to provide in order to qualify for a mortgage? Lending requirements have changed at a rapid pace, largely due to a regulatory environment seeking to prevent a repeat of the real estate collapse. While it used to be good enough to state your income, regulations now require that income be “fully documented”. To clarify, here is a list of the forms of documentation that are used to verify income in the majority of mortgage qualification scenarios in 2015:

young couple paperworkEmployee or Hourly Worker

  • Current paystubs covering 30 days.
  • Two most recent W-2 forms.
  • Two most recent 1040 Federal tax returns, all pages and schedules.
  • If using bonus income to qualify, a year-end paystub from the two previous years.

Sole Proprietor or Independent Contractor

  • Two most recent 1040 Federal tax returns, all pages and schedules, particularly Schedule C.
  • Year-to-date profit and loss statement and balance sheet (in some cases).

Partnerships, LLCs, and S-Corporations

  • Current paystubs covering 30 days, if applicable.
  • Two most recent W-2 forms, if applicable.
  • Two most recent K-1 forms.
  • Two most recent 1040 Federal tax returns, all pages and schedules, particularly Schedule E.
  • If K-1 reflects ownership of equal to or greater than 25% then:
  • Two most recent business tax returns (1065 or 1120S Federal returns), all pages and schedules.
  • Year-to-date profit and loss statement and balance sheet (in some cases).

C-Corporations Where Borrower Has 25% Ownership Interest or Greater

  • Current paystubs covering 30 days, if applicable.
  • Two most recent W-2 forms.
  • Two most recent 1040 Federal tax returns, all pages and schedules.
  • Two most recent business tax returns (1120 Federal returns), all pages and schedules.
  • Year-to-date profit and loss statement and balance sheet (in some cases).

While this list is going to prove accurate in 99% of all cases, it’s not intended to be gospel. Your loan advisor or underwriter might ask for additional items, or in other instances, less could be required. Much will depend on the type of loan, the size of the loan and the investor making the final decision.

One thing is certain when it comes to residential mortgage lending in 2015: If you last purchased or refinanced during the “stated income era,” today’s requirements will feel vastly different.  Rest assured we’re here to guide you through the updated requirements and package your loan for the highest probability of success.  To learn more, contact a loan advisor near you.

By Rob Spinosa